Outsourcing software development is now the primary means of hiring tech talent for companies, with over 60% of companies outsourcing some form of software development in 2021.
There are numerous types of outsourcing, but perhaps the most interesting is that of an offshore software development company – a strategy that can yield many benefits, but one that can also result in greater challenges relative to onshore hiring.
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A widening talent gap is bolstering offshore software development services
Hiring a software development partner from a different country or continent to where you (the client) is based can offer some huge advantages, including the ability to reach a global talent pool and negotiate cheaper costs that are more in-line with the local economy.
But what is driving the growing interest in hiring offshore companies? The main reason points to a large tech-talent gap in major economies like the US.
It is predicted that there will be a shortage of 1.2 US-based engineers by 2026. At the same time, software development jobs are expected to grow 22% through 2029 (US Bureau of Labour Statistics, April 2021).
These economic factors are pushing up developer salaries, with the average now being just over $110,000. (Accelerance Rates Guide 2021-2022).
Senior roles therefore demand a much higher salary – and experienced developers are who you should be aiming for when outsourcing your software development needs.
In order to balance costs with expertise, offshore software development has somewhat blossomed in recent history.
So can your business benefit from the offshore development market? You will have a concrete answer by the end of this article.
Types of Software Development
Offshore software development is only one strategy in the encompassing market of outsourcing and hiring models.
Before delving into the offshore method specifically, let’s get some perspective in where it stands in the overall scheme of software development.
Onshore Software Development
It may be hard to justify an onshore development strategy with current market trends, but there are certain scenarios where you may wish to hire developers locally instead of internationally.
If your development team requires close collaboration, relies on specialised hardware only situated on your premises, or where security is of paramount importance and only face-to-face meetings are allowed, then these scenarios will make your software development strategy a no-brainer.
The conversation of whether to outsource software development or hire developers as employees arises with onshore software development more-so than offshore, but this decision entirely depends on the company’s requirements.
For example, the company may not have the budget for full-time software developers, so may go the outsourcing route instead.
In-house / staff segmentation method
On this note, staff segmentation is a common onshore outsourcing approach that is more budget friendly than hiring employees in-house.
With staff segmentation, developers are bought into a team on a contractual basis to fill skill gaps in the existing in-house team.
Staff segmentation can also be achieved with offshore development, albeit without the opportunity to train existing team members on site.
Nearshore Software Development
Nearshore software development is a common term used to describe offshore partners that are in neighbouring countries to your own.
Partnering with such companies can sometimes bring the same benefits that offshore development offers – lower costs, better access to talent, etc – but maintains consistency with working hours and timezone, makes travel and communication easier, and work ethics, language and culture will be more inline between contractor and contractee.
Nearshore makes sense in countries like the UK who can rely on nearshore partners in eastern Europe, or Asian economies like Hong Kong or Taiwan relying on nearshore partners from mainland China.
Offshore Development: Contractor vs Internal
Offshore software development doesn’t necessarily mean going the outsourcing route every time; it is also common for larger companies to set up offshore offices and hire a team of offshore developers from that country.
These are termed offshore development centres.
This method keeps all development, communication and management responsibilities under the same company, giving the company full control over day-to-day operations.
At the same time, the local economy can be leveraged by sourcing local talent at cheaper prices.
Other economic factors such as tax laws, government incentives such as startup programs, and the cost of electricity can all be leveraged.
On the flip-side, maintaining such a setup is very costly, and only viable for large, established organisations.
For this reason, this article will primarily discuss the outsourcing approach to offshore software development, rather than the offshore development centre model.
Offshore software development outsourcing is a huge industry
These platforms aid in the discovery and hiring process of offshore development companies, and curate the whole process from vetting potential companies to securing a contract, managing communication, and paying them (where hourly rates are the most common payment model).
The above platforms are flourishing in the global market of offshore software development as more companies look to improve their software.
83% of companies expected a further increase in the need for new digital products or services in 2021. 64% of these respondents stated they’ll require enhanced expertise from external partners, that include IT outsourcing firms (Gartner 2021 CIO Agenda).
Software Services That Can be Outsourced
Outsourced software development services can both be on-going arrangements, or temporary jobs that an outsourcing company needs to get done within a strict time period. This ultimately depends on the service in question.
Let’s delve into the kinds of services offshore development firms commonly fulfil for clients.
Mobile app development
Many companies now offer a mobile-first experience for the user, and therefore require an iOS or Android app as a flagship product of their application catalogue.
Developing custom solutions for mobile is a specialised field in and of itself, and requires at the least a small team of developers to deliver a sizable mobile app.
Read more about hiring app developers here: How to Hire an App Developer – The Last Guide You’ll Need!
Web services and server infrastructure development
Even mobile apps need to connect to web services and cloud infrastructure to power their front-facing UX.
Web development is another common task for offshore software development companies, who have the freedom and flexibility to complete services with minimal influence from the client.
Server-side web application development is a more specialised field that has become complex in recent times with techniques like containerisation, automated deployment, and sharding & replicating global databases, all in an effort to deliver apps to a global audience faster and more seamlessly.
UX and Interface Design
UX design is another field that has grown in complexity as front end frameworks have become more sophisticated (think of the React suite of tools, for example).
Developing an online brand with colour palettes, style guides and font styles is one task that does not necessarily require coding, instead relying on tools like Figma to concept the brand in question. There will be many offshore firms that offer such services.
A greater level of specialisation is required when actual interactive interfaces are developed and iterated upon.
This is where the actual development of an application takes place, which will ultimately gauge how successful an interface design behaves and feels on an actual device.
Implementing interfaces and optimising performance of them is a primary task for expert offshore developers.
QA / Code Auditing / Testing Services
Code auditing is another high-level development task that is very well suited for small external teams under a contractual model.
Auditing a codebase is not a full-time commitment, instead taking perhaps a couple of weeks to a month to complete a code audit. This makes the service ideal for outsourcing.
Read about outsourcing pros and cons in Iglu’s accompanying piece: IT Outsourcing Pros and Cons.
When to Hire an Offshore Software Development Company
You may already have a good idea on which offshore development services you would outsource for your particular needs. But when does it make sense to do so?
In general, the following motivating factors spawn the idea of an offshore outsourcing effort:
- Desiring a faster speed to market.
- Wanting faster scalability.
- An ambition for enhancing user experience.
- Trying to obtain a competitive advantage over competitors.
These are aggressive and ambitious targets that larger companies are proactive in acquiring.
There are scenarios however that drive smaller companies to opt to outsourcing an offshore software development partner due to factors less out of their control – let’s explore these in more detail.
When on a tight budget
When cashflow is a bottleneck (especially the case for startups), offshore outsourcing will offer cheaper price tags for talent the company requires to advance its software.
Other advantages to this method include not having to worry about sick pay or sick leave, insurance or pension payments, and other expenses associated with the payroll.
On the contrary, contractual partnerships only require an hourly rate to be agreed upon, and a signed agreement before the work commences.
When your company has a talent gap
This scenario comes about when a company wishes to branch their software into new territory – this often equates to using a new programming language, a new web service, or having to develop for devices the company has little to no experience in doing.
Outsourcing an experienced offshore development company will fulfil these needs. Not only this, they’ll also set the expectations and educate the client to some extent of the new technologies being adopted.
The outsourcing partner is fulfilling the client’s needs, but is also demonstrating how to use the technology to a good standard for future reference and expectation.
Enterprise-grade outsourcing partners will do this effectively, whereas body-shop (low quality) partners are more likely to have less of an intuition of how to use a technology to its full potential, often coming with bugs, poorly documented code and a sub-par solution.
When a task is too large to undertake by an internal team alone
Companies oftentimes have more than capable team members, but simply do not have enough manpower to reach deadlines in time.
Onboarding a competent offshore software development outsourcing partner can bring in additional team members to ensure code is written and completed.
What is interesting about this scenario is that internal developers have the capability to audit work done by the outsourcing partner, test code and fix / refactor any they think is subpar.
So even if the work is not to a quality the company expects, fixing up code that already exists may be quicker than having to code everything from scratch.
Such a strategy will allow companies to hire cheaper offshore software development partners, albeit with more risk.
Benefits of Hiring an Offshore Software Development Company
Lower development costs
Offshore software development often comes with a reduced overall cost. But in general your costs will be determined by a range of factors. The main ones are:
- In-demand skills: Cutting-edge skills for trendy technologies will come with a premium no matter where an outsourcing partner is based.
- Length of project: Outsourcing companies tend to offer better pricing to longer projects as a result of securing long-term work. It is therefore a good idea to communicate if you’re interested in a multi-year partnership.
- English proficiency: Language difficulties result in slow-downs in communication and overall project progress, and ultimately become more costly even though the project is developing at a slow pace.
- Location: Certain regions (Ukraine, for example) have developed a reputation for being highly competent at providing outsourcing services, which increase the prices for that region.
- Experience / track record: The more seniority a development team has, the higher they will cost.
Codebases grow in complexity as more features are added, and as more technologies are used in the technology stack and overall development pipeline. This natural evolution of a software product poses challenges for scaling development efforts to continue development at a fast pace.
When bottlenecks are reached within an internal organisation, outsourcing offshore partners can help overcome internal limitations. This can be done in two ways:
- Tasking the outsourcing partner to maintain your current feature set while your internal team works on new features.
- Tasking the outsourcing partner to develop new features while the internal team maintains current ones.
It is interesting to consider which path to take – perhaps a team already accustomed to a codebase would gain more job satisfaction working on newer features, for instance.
Faster time to market
A continuation of the previous point, a larger team developing features at a quicker pace results in a faster time to market – and this reasoning can be applied to every stage of a development pipeline.
Creating test cases for complex codebases can be particularly time consuming, and one that can be targeted by an offshore outsourcing partner.
Access to global talent pool
This is the main benefit of offshore outsourcing – a huge talent pool that is readily accessible via a range of online platforms.
To read more about specific locations to outsource to, refer to Iglu’s accompanying piece: How to Outsource Software Development: The Ultimate Guide.
Lower commitments and risks
As already discussed, contracting offshore partners removes the need to manage the expenses of employing staff, and lowers commitment timeframes.
The risks associated with laying off employees, damaging company reputation or internal feuds can be avoided with outsourcing.
Focus on core business competencies
An external group of outsourced software engineers effectively offloads tasks for an internal team to focus on day-to-day business processes and their over core competencies, greatly improving project management capabilities.
Outsourcing a highly dedicated team will lead to new industry-leading products being onboarded, while core business operations can continue without any compromise in time or staff commitments.
Risks of Offshore Software Development
We’ve thoroughly documented the opportunities and benefits of hiring an offshore software development company, but understanding the risks associated with the practice is also critical to success.
Keep the following risks in mind when undertaking any offshore outsourcing endeavour.
Are all expectations understood by the outsourcing partner as an agreement is being drawn up? Ensure there are no communication barriers or misunderstandings in the works that need to be completed.
Undefined operations / inadequate partnership contract
Be sure to include every requirement in the agreement contract as to not brush past any work that needs to be completed. If a milestone needs more detail as to how it will be completed, ensure to document every step of the process.
Leaving certain aspects of the project “up to the partner” or to “creative freedom” may entail a lot of risk and disappointment if the partner is not capable of rising to such challenges.
Lack of team engagement and unclear milestones
A lack of communication can lead to inconsistencies in direction, and will result in poorly defined milestones which may not be reached.
Ensure that the outsourcing partner has a track record of delivering products on time with long-term projects, providing confidence that they can maintain consistent focus and motivation to carry out a project until the final milestone.
Not having a leadership figure within the partnership – on both the client side and outsourcing side – can lead to confusing communication, a lack of direction and slower turnaround.
Ensure you have the people capable of leading and directing the offshore software development efforts.
Hidden or unexpected costs
Hidden costs sometimes arise when a development pipeline is not thought through.
Perhaps the outsourcing partner requires additional online tools, each with their own subscriptions, to complement a development process.
Or perhaps the outsourcing partner finds they are not capable of completing a task, and outsources an external party themselves to get the job done – and bills the client the resulting costs.
Stick to the agreed hourly rates and ensure partners already have capabilities in place to complete the software to a good standard.
With over 10 years of experience in the industry, Iglu has a track record of attracting talented digital specialists from all over the world.
Our Enterprise-grade employees range from senior talents with decades of experience to junior employees for more affordable solutions.
Not only are we experts with the mainstream tech stacks, but we also have specialists in some of the most exotic programming languages.
See our comprehensive list of services for more information and we will look forward to working with you.
This article has outlined the case for offshore software outsourcing, discussing the reasons behind the huge outsourcing market available today, in addition to the benefits and risks associated with offshore software development.
Offshore software development is becoming the primary means to outsource a range of software development services, and the prominent ones were mentioned in this piece.
Notably, offshore software development is not the only viable model for a company; onshore methods can also be suitable and cost-effective in some scenarios, such as if the company absolutely requires one dedicated office environment.
Offshore outsourcing does come with risks, which should be carefully considered when vetting potential candidates for your software development project.
Take all the time necessary to find the best suited offshore software company for your project requirements to ensure the greatest success in your endeavours.